Property loans and the Financial Crisis
On the off chance that you have been living in another universe lately, you may have managed to miss the recent credit crisis and it’s after effects – i.e. pressure on the credit segment resulting in loans being difficult to come by. Especially in the speculative area of investment property loans because real estate values are continuing to decline, meaning constraints on loans for investment property purposes as well as personal use.
The level of lending going on is still dismally low, and the financial institutions are applying strict lending criteria, which is making life difficult for those wishing to borrow to invest in property. There are still opportunities for those with cash in hand, but they will have to come up with substantial deposits in order to qualify for a loan. Since the mega loans evaporated, even the luxury homes market is feeling the pinch.
The question arises as to whether to get involved in residential real estate or non-residential property investment. The two area of the markets are very different and require radically different approaches to be successful. Most investors prefer to stick with one or the other, and this is good advice for the newbie investor. It is possible to get involved in both at the same time, but legal advice is necessary to avoid the many pitfalls.
As the name clearly suggests, a residential investment real estate loan is only available for real estate that is residential in nature. Leases for residential real estate tend to run for shorter periods commercial leases. Typical lease periods for residential are between 6-12 months, whereas it is unusual to see a non-residential lease for less than 5 years, and they are sometimes longer – as much as 25 years.
Warehouses, retail premises, and other industrial real estate that is not to be used for residential use invariably have longer leases than their residential counterparts. Mostly because of the costs involved in setting these up and in some European countries, the fact that the property firms control the law making process to such an extent that they can have the laws written to suit themselves. It is certainly worth investigating using a professional advisor before committing. And the on-going lack of health in the financial system means it may well be necessary to look outside traditional sources for a loan.
Filed under: General Interest